Squeezed by government rules meant to curb a surge in gold imports, India's bullion industry is shrinking, with banks and others opting to redeploy personnel for now but possibly facing big job cuts in coming months.

Refiners, jewellery manufacturers and retailers say they could start cutting jobs after Diwali, one of India's biggest festivals, in the first week of November as festive demand will have sucked supply dry. Some have already begun to do so.

Gold on the local market is now fetching a record premium of $130 an ounce to the global bullion price and that is expected to climb even higher because of coming festivals.

Bullion banks, who profited from huge volumes of gold imports until May, have begun shifting people from their gold desks to other teams.

"There is no gold coming in so how do we carry on? Consolidation is happening at the moment in the industry," said the head of one of India's biggest jewellery chains, speaking on condition of anonymity.

He said he had cut "tens of jobs" at his firm.

Gold is the second-biggest item on India's import bill after oil and, facing a record trade deficit and a plunging currency this year, the government imposed stringent rules with the aim of curbing demand for the metal.

These have slowed imports to a trickle: a mere 7 tonnes arrived in September versus a record high of 162 tonnes in May.

One of the new rules stipulates that 20 percent of imported gold has to be re-exported. Exports currently equate to less than 10 percent of imports, which means it will be hard to meet the country's estimated demand of 1,000 tonnes this year.

"It will get difficult for a jeweller to replenish gold after festivals. We are anticipating a transfer of workforce from the jewellery sector to others," said Bachhraj Bamalwa, a director at the All India Gems and Jewellery Trade Federation.

He said around 15 million people worked in jewellery manufacturing plus 1 million in sales, and that a quarter of them could lose their jobs if supply problems continued, an alarmist forecast that might put pressure on the government to rethink the import restrictions.

About 300,000 to 400,000 artisans from Zaveri Bazaar, India's biggest bullion market, have already moved back to their villages due to a lack of work, according to Bombay Bullion Association director Kumar Jain.